Cyprus Not a Worry? The Russia ETF Crowd Is Hedged

By Brendan Conway

The Russian stock market just capped its toughest week since May. Blame Cyprus: You can pretty much tie the 3.6% decline in the Micex Index directly to the tiny island’s teetering banking system, where Russian lenders and companies are thought to hold $31 billion, or about half of total Cypriot deposits.

While U.S. stock investors (SPY) apparently don’t care much, the same isn’t true for owners the Market Vectors Russia ETF (RSX), which is down by about 4% this week.

Put options granting the right to sell that Russia-focused exchange-traded fund have traded actively all week. Those puts can be used to guard a holding in the ETF against decline, or (among other things) to speculate on a fall.

From Susquehanna Financial Group’s derivatives strategists earlier in the week:

There is protective trading today in the Mkt Vector Russia which continues to be active due to Russia’s exposure to Cyprus’s proposed tax levy on bank deposits. Early in the session, an investor sold 5,000 May 30 (.20d) calls at $0.175, and it was later followed by an opening buyer of 2,500 April 26 (.20d) puts for $0.22. The call seller participant is getting short May volatility and likely overwriting long stock which carries the risk of selling shares at $20. Meanwhile, the April put buyer is most likely hedging long stock given headline risk. In cautious trading yesterday, an investor bought 5k April 27 puts, closing.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.